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Mohamed A. El-Erian, Chief Economic Adviser at Allianz, the corporate parent of PIMCO where he served as CEO and co-Chief Investment Officer, was Chairman of US President Barack Obama’s Global Development Council. He previously served as CEO of the Harvard Management Company and Deputy Director at the International Monetary Fund. He was named one of Foreign Policy’s Top 100 Global Thinkers in 2009, 2010, 2011, and 2012. He is the author, most recently, of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

China is actually pragmatic in catering to its domestic requirements. Any state would be foolish to do otherwise. The idea of playing an intelligent actor in the world - as opposed to the idea of the rational actor of a realist world - by China is envisaged in its two very ambitious initiatives it has undertaken. The AIIB and the One-belt-one-road Silk Route initiative. I think the author could look at those too.

The transition of China to a market economy has many challenges. The unbalance structure of GDP, the incipient liberalization of the financial system, the flawed inroads into the capital market, and the still precarious ways of freedom of Chinese people from Government (example the one child policy) makes the China economic path ahead a difficult one to guess. On her favor is the strong political control by the communist party and the patient conduct of the Chinese to achieve its long term goal of development. There is a single issue that could betray its development: its growing military power and a policy to assert its dominant military position in Asia. But history teach us, that when countries become democracies, peaceful ways to resolve conflicts are easy to find.

Tell me why the answer is not for China to print and distribute helicopter money to its citizens? If you want to create domestic demand, why not do so directly? Obviously, monitor inflation and ease off if inflationary bottlenecks arise. Comment?

Global financial instability? Former chair of the US Federal Reserve, Ben Bernanke, writes this week that national interest should determine US monetary policy; this is despite it being the biggest economy and the creator of financial discipline in Bretton Woods .
Isn't China being criticised in this essay for lesser actions - allegations from the US that it is failing to behave as a responsible global citizen? Washington unilaterally fines Europe for such things. US geopolitics has been a problem for years for international financial regulators such as the IMF.

The systematic devaluation of the Yuan in 2015 by the Chinese authorities was in response to the austerity policies of the Europeans (export seeking economic growth) and the inadequate US economic growth.
The rise in interest rates by the FED, if anything, signaled the likelihood that US economic growth will remain moderate to anemic; thus, the Chinese monetary authorities may have deemed necessary the further devaluation of their currency.
Many economists had advised and warned the FED not to raise the interest rates and today’s turmoil in the financial markets should be attributed not to the Chinese response but rather to the FED’s act.

Mr El-Erian,
Thank you for a clearly reasoned and very balanced article on what's happening to the Chinese economy and how it is affecting rest of the world. I have only one comment on why China chose not to follow FED, ECB and BOJ to use quantitative easing(QE) monetary expansion moves to stimulate its economy.

The reason is that Chinese economic transition from investment led export focused to domestic consumption led demand driven has barely begun. It is going to take time for this transition to take hold. In the meantime, China has no choice but to stimulate its export sector by devaluing Yuan gradually so as to minimize its impact both externally and domestically. If China used QE actions, it would have simply risked stimulating its stock market and real estate bubbles even larger and then suffer a huge crash.

Official Chinese state media has stated, following China's recent leaders planning meetings, that the Chinese economy will follow a "L" shape not a "V" shape recovery. What it means is that China's economy will shrink several notches and then go forward flat. What those "several notches" represent will be the "excess capacities" in infrastructure development and residential/commercial real estate developments.

2016/2017 looks like it's going to be bumpy years. Guess we better cover up all the hatches and doors and get ready for a rough ride.

Also, most Chinese trade is with asia, and the JPYCNY has been all over the map. As fas as US vs EU go, china imports more from EU but exports more to US. It would seem to me that a rising USD and falling EUR, with CNY splitting the difference, would perpetuate this situation.

Thank you Michael...long ago, (1983) I provided the Industriial Architecture from an Engineers point of view to compete with Japan then. It looked like the process is still working. Then I came to help USA and India, but no one listened...they told me to get a degree in Economics and not use my Engineering. So, that is where we are now. And since USA, Europe and India is basically dying...China has to manage the growth rate....that may grow from the Middle-East Damage in the future.

Balancing the domestic and international impact of monetary policies of major economies such as the ones of China and the USA is very difficult, particularly in the present global monetary jungle where there is a little coordination.
I think that UNDESA with assistance of the IMF should reconsider the pros and cons of fluctuating exchange rates and the pursuit of a global monetary standard and that a monetary conference should be planned that would include an evaluation of the 2009 Stiglitz conference.

Given the important role of the international monetary system that as glue binds together the monetary, financial, economic and commercial systems such monetary study and conference should envision a just, sustainable and, therefore, stable world order. Such word order is envisioned in the carbon-based international monetary system proposed in Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation". The conceptual, institutional, ethical and strategic dimensions of its monetary standard of a specific tonnage of CO2e per person are updated at www.timun.net.